Have you ever wondered how you could be as financially successful as the country’s wealthiest? I recently sat down with a family member of one of the wealthiest families in our country and asked them what they believe are the ingredients for long-term, sustainable wealth. Here is their advice.
Be clear on your values. What is most important to you? Family, freedom, happiness, joy, growth, contribution? Spend time clarifying your values, and discuss them with your family and children.
Spend time uncovering what it is that your children value also, and why. And then dig even deeper. What are the rules for your values – what needs to happen for you to feel joy, to feel happiness, for you to feel as though you’ve made a contribution?
Your values are your blueprint. Your values shape your beliefs and your beliefs influence your decisions, so be clear on them.
2. Goals & vision
Once you have clarified your values, start setting your goals. Break them up into short (1-2 years), medium (3-5 years), and long-term (5+ years) goals. Put a time frame next to them, and a value. Most importantly, write them down! These should be revisited and reviewed regularly – at least once, possibly twice a year depending on your situation.
We spend so much time setting goals for our businesses, and we spend more time planning our annual holidays than we do our money and finances.
A Harvard Business School MBA study asked one single question about life goals, “Have you set written goals and created a plan for their attainment?”
Prior to graduation, it was determined that:
- 84% of the entire class had set no goals at all,
- 13% of the class had set written goals but had no concrete plans, and
- 3% of the class had both written goals and concrete plans.
Well, you’ve likely somewhat guessed it. 10 years later, the 13% of the class that had set written goals but had not created plans, were making twice as much money as the 84% of the class that had set no goals at all.
However, the kicker is that the 3% of the class that had both written goals and a plan, were making ten times as much as the rest of the 97% of the class.
3. Talk to you children about money
We can never be too sure whether its right to talk to our children about money, let alone when is the right time – it can be a little embarrassing.
The advice is to talk to your children. Whether it’s around the dinner table, or while watching the footy, you’re already spending time together, so add it to the agenda – it helps instill strong values earlier on in their lives.
We allow our children to ride their bike without training wheels, we allow them to drive their (sometimes our) car once they’re legally allowed to, and we allow them to head out into all hours of the morning, yet we tell ourselves they’re not mature enough to have input into financial decisions. They’re likely to eventually end up with it anyway, so it’s our responsibility to ensure a sustainable wealth transfer – use your wealth as an enabler, not a dis-abler.
Historically, 70% of inter-generational wealth transfers fail due to lack of communication, so it’s on you to get it right.
4. Structure and planning
Once you’re clear on your values and have written down your goals, it’s time to put in place the structure and strategy to drive your vision – your game plan.
This ensures investment decisions can be made while looking through the right lens, and that your decisions are driven by your vision and by achieving yours goals, not by the Fear of Missing Out (FOMO), tax, or other distractions. Unfortunately, far too many people lead their decision making with the product or investment first, when in fact you should be driven by your goals and plans.
5. Take the long view
Some of the wealthiest families in the world have been riding through the ups and downs of investment markets for decades. Patience and remaining disciplined are important traits in order to be successful. You need to allow time for your strategies to unfold. The corporate and investment world is so focused on the performance and outcomes over the next “quarter” (3 months of the year), you too should focus on the next quarter, the next quarter of a century that is.
Finally, stop focusing on stock picking and get your asset allocation right – it represents and generates 90% of your return, whereas stock selection generates 5%. We spend 90% of our time on the thing that generates 5%, and 5% of our time on the thing that generates 90%.
You can’t know everything about everything. They say that a man who represents himself in court has a fool for a client. Find someone who can provide you with expertise. Someone who can help you make sound, unemotional decisions, someone you can use as a sounding board, someone who can help you see the forest for the trees, someone who can introduce you to and work with other subject matter experts when required. If you do all these things, you too can be an overnight billionaire.
If successful investing and sustainable wealth was easy to attain, everyone would be wealthy.